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Sweet Mystery of Money

Ron Miller  1994

Published in:

  • Northwest Technocrat Newsletter, April 1994, No. 123
  • The Northwest Technocrat, 1st quarter 1995, No. 338

The real problem with money is that some people confuse it with wealth. Money is not wealth. It represents wealth. The attitude seems to be that if people, or the economy, don’t have enough money, why not just print some. It is just this kind of thinking that usually brings about the final collapse of every Price System.

Money is a commodity, like bananas or toothbrushes. Only it is a commodity that isn’t real, so the supply of it can be controlled easily by governments. To make food, you first have to grow it, and then harvest it, and, finally, transport it to where it is needed. The same goes for any other commodity. But you can make money as fast as a printing press can run. The only thing physical that you need is paper and ink. You do, of course, need the presses and the manpower, but these are minimal.

At the core of this little puzzle is the sum total of all the real commodities in a certain area that are available for distribution to the people of this area. This is a finite number. It is a great simplification, but suppose that the total amount of money in the system adds up to the total costs of all the commodities. Then the system works. People who have the money exchange it for commodities they want or need. They receive money for their labor and produce more commodities and consume them. Now suppose you want to make everyone richer. You print more money. The amount of commodities hasn’t changed. So because there is more money, the price of everything goes up. This is called inflation. An economist would say that all you have done is to debase the currency. You have reduced its value.

A number of things now begin to happen. When people give a loan to someone or buy a bond (the same thing), they expect a return on their investment — interest. This is the price of money. If a person makes a loan to another person and the amount of interest that he receives for his loan equals the rate of inflation only, then he hasn’t made any money at all when the loan is paid off. He has just broken even. He could have done just as well if, in the first place, he had gone out and bought some things for himself instead of making a loan to someone else. The problem with this is that one really can’t know just what the rate of inflation will be in the future. So one takes a little gamble and guesses that it will probably be about the same as it has been in the immediate past. This makes banks and bond trader’s really nervous people. Talk of inflation gives them nightmares; what if they guessed wrong!

Now the next thing you might think is that if these guys are getting more in return for their loans than the rate of inflation, wouldn’t that cause inflation itself? Not if the loans they are making increase the total amount of commodities available. Everything ends up right where it started. More commodities equal a higher standard of living, but for every commodity there is a limit as to how much, on a per capita basis, everyone can consume.

Exceeding this limit is called by some, overproduction. In order to have value, a thing must be scarce. OK, how do we get out of this one?

Suppose you invent a whole bunch of new commodities. (This is just what President Clinton wants.) One of the problems is that a lot of those new commodities most likely will be commodities that reduce the amount of labor required to produce more commodities. Yikes!

No labor — no wages. No wages — no purchasing commodities. No purchasing commodities — no more money in circulation. Obviously, what we need here is an economy that expands fast enough to provide enough wages to keep this merry-go-round running. We will borrow money to make more jobs and when it comes time to pay it back, we will just borrow more to pay off the old loan and make more jobs. This begins to take on a really mystical quality.

This is great for the economy and great for the people loaning the money. The economy keeps chugging along, burning up more irreplaceable natural resources and generally devastating the landscape. The people who loan the money keep clipping coupons. Wow! A perpetual motion machine! Of course, the debt keeps getting bigger and the interest keeps growing until it becomes a bigger share of one’s income. What happens when the interest equals the income?

It won’t ever get that far. If those really nervous people who make the loans and buy the bonds got wind of a story that the money presses were about to roll, they would fold their tents right now. They would bail out of their bonds to any fool who would buy then. They would take their currency and get rid of it by buying gold — the price of gold would climb fast — German marks, Swiss francs, anything but dollars. The economic plug would be pulled so fast, the economy would look as though it had hit a brick wall. Last one out, please shut off the lights.

The last stage of a Price System is usually a hyper inflation. In the 1920s, it brought Hitler to power in Germany. When governments go broke, they usually crank up the printing presses and try to inflate their way out of it. It is possible for the supply of money to reach abundance — at which point it becomes worthless.

The really important question is not, “How much money do you have?” but, “How much will your money buy?”

And the even bigger questions are, “How much is your interest payment in relation to your income? How much debt can you support?”

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